MODULE 1 OM

BA 311 – OPERATIONS MANAGEMENT

MODULE 1 OVERVIEW:

Welcome to Module 1 – GOODS, SERVICES, AND OPERATIONS MANAGEMENT

Every organization has an operations function. The primary goal of most organizations involves the production of goods and services. To address this, they have to secure resources, convert them into outputs and allocate them to their intended users. It encompasses all the activities required to build and deliver an organization's goods or services to its customers or clients.

Within large and complex organizations, operations are usually a major functional area, with people specifically designated to take responsibility for managing all or part of the organization's operations processes. It is an essential functional area because it plays a crucial role in determining how well an organization satisfies its customers.

This module is designed to provide you with a basic framework for understanding operations management and its organizational and managerial context, whether they provide services or produce goods to all sectors. Various examples from hospitality, tourism, and other areas are also presented in this unit.

COURSE CONTENT FOR MODULE 1: GOODS, SERVICES, AND OPERATIONS MANAGEMENT LECTURE DISCUSSIONS

1.1 OPERATIONS MANAGEMENT (OM)

Science and art of ensuring that goods and services are created and delivered successfully to customers. Applying the principles of OM entails a solid understanding of people, process, and technology, and how they are integrated within business systems to create value.
Only function by which managers can directly affect the value provided to all the stakeholders — customers, employees, investors, and society.
Essential in providing high quality goods and services that customer demands, motivating and developing the skills of the people who actually do the work, maintaining efficient operations, to ensure an adequate return on investment and protecting the environment.

You need not have the title of “Operations Manager” to “do operations management. Every job entails some aspects of operations management. The ideas and methods of operations management will help you get things done successfully regardless of your functional area of business or industry.

As you manage business functions such as accounting, human resource management, legal, financial, operations, supply chain, environment, service, or marketing processes, you create value for your internal customers (within the organization) and for your external customers (outside the organization). Everyone who manages the process, or some business activity should specifically set of basic OM.

1.2 OM IN THE WORKPLACE

Some key activities that operations managers perform include the following:

Forecasting: predict the future demand for raw materials, finished goods, and services.
Supply chain management: manage the flow of materials, information, people, and money from suppliers to customers.
Facility layout and design: determine the best configuration of machines, storage, offices, and departments to provide the highest levels of efficiency and customer satisfaction.
Technology selection: use technology to improve productivity and respond faster to customers.
Quality management: ensure that goods, services, and processes will meet customer expectations and requirements.
Purchasing: coordinate the acquisition of materials, supplies, and services.
Resource and capacity management: ensure that the right amount of resources (labor, equipment, materials, and information) is available when needed.
Process design: select the right equipment, information, and work methods to produce high-quality goods and services efficiently.
Job design: decide the best way to assign people to work tasks and job responsibilities.
Service encounter design: determine the best types of interactions between service providers and customers, and how to recover from service upsets.
Scheduling: determine when resources such as employees and equipment should be assigned to work.
Sustainability: decide the best way to manage the risks associated with products and operations to preserve resources for future generations.

Below are some examples of how OM is applied in our jobs:

Example 1:

Gemnoe was an accounting major in college major and started her career at Chiquita Brands in a division that produces and sells fruit ingredients such as, banana, puree, frozen sliced banana, and other types of fruit products. Although her primary job title is accountant and she is involved in monthly accounting closing and other accounting tasks, Gemnoe uses OM skills to support her work. These include:

Quality and customer Service Issues	If there is a quality issue with a product either at the plant level or the customer level, the accounting group has to account for it in the Inventory Reserve Account, which is reconciled during the closing process.
Performance Measurement and Evaluation	Part of Gemnoe’s responsibility is to look at the monthly profit versus cost analysis by product to calculate a net contribution. She examines the product costs at the plant level to find more efficient and co-effective methods of production. An example is to increase efficiency by reducing plant downtimes, which increases the price per pound of the product. To find more cost-effective methods of producing the product, the biggest area is in constantly looking for better or cheaper fruit sourcing suppliers.
Performance Measurement and Evaluation	Part of Gemnoe’s responsibility is to look at the monthly profit versus cost analysis by product to calculate a net contribution. She examines the product costs at the plant level to find more efficient and co-effective methods of production. An example is to increase efficiency by reducing plant downtimes, which increases the price per pound of the product. To find more cost-effective methods of producing the product, the biggest area is in constantly looking for better or cheaper fruit sourcing suppliers.
Managing Inventory	part of the closing process is to reconcile the inventory movement because inventory is what drives the fruit commodity business. It is very important to make sure inventory balances a level are accurate as this is what the percentage of sales is based on. She is also involved in ensuring inventory accuracy at the company's distribution centers.

Example 2

After graduating from College, Shelly Decker and her sister embarked on an entrepreneurial venture to manufacture and sell natural soaps and body products. Shelly was an accounting and information system major in college, but she was using OM skills every day:

Process Design	When a new product was to be introduced, the best way to produce it had to be determined. This involved charting the detailed steps needed to make the product.
Inventory Management	Inventory was tightly controlled to keep cost down and to avoid production that wasn’t needed. Inventory was taken every four weeks and adjusted in the inventory management system accordingly.
Scheduling	Production schedules were created to ensure that enough product was available for both retail and wholesale customers, taking into account such factors as current inventory and soap production capacity.
Quality Management	Each product was inspected and had to conform to the highest quality standards. If a product did not conform to standards (wrong color, improper packaging, improper labeling, improper weight, size, or shape), it was removed from inventory to determine where the process broke down and to initiate corrective action.

Example 3:

Brooke Wilson is a process manager for JP Morgan Chase Company, specifically in the credit card division. After several years working as an Operations Analyst, she was promoted to a Production Supervisor position overseeing “plastic card production”. Among her OM-related activities are:

Planning and Budgeting	Representing the plastic card production area in all meetings, developing annual budgets and staffing plans, and watching technology that might affect the production of plastic credit cards.
Inventory Management	Overseeing the management of inventory for items such as plastic blank cards, inserts such as advertisements, envelopes, postage, and credit card rules and disclosure inserts.
Scheduling and Capacity	Daily to annual scheduling of all resources (equipment, people, inventory) necessary to issue new credit cards and reissue cards that are up for renewal, replace all or damaged cards, as well as cards that are stolen.
Quality	Embossing the card with accurate customer information and quickly getting the card in the hands of the customer.

1.3 UNDERSTANDING GOODS AND SERVICES

TERM	DESCRIPTION	EXAMPLES
Good	A physical product that you can see, touch, or possibly consume.	Oranges, flowers, televisions, soaps, airplanes, fish, furniture, coal, lumber, personal computers, paper, or industrial machines
Durable Good	A product that typically lasts at least three years	Vehicles, home appliances, furnitures, consumer electronics, medical equipments
Non-Durable Good	A perishable and generally lasts for less than a year.	Toothpaste, software, shoes, condiments, and fruits
Service	Any primary or complementary the non-goods part of a transaction between a buyer (customer) and seller (employee).	Hotels, legal and financial firms, airlines, healthcare organizations, museums, and consulting firms

Goods and services share many similarities. They are driven by customers and provide value and satisfaction to customers who purchase and use them. They can be standardized for the mass markets or customized individual needs. They are created and provided to customers by some type of process involving people and technology.

Services that do not involve significant interaction with customers (for example, credit card processing) can be managed much the same goods in a factory, using proven principles of OM that have been refined over the years. Nevertheless, some very significant differences exist between the goods and services that make the management of service-providing organizations different from goods-producing organizations and create different demands of the operations function.

As a review:

Goods are tangible, services are intangible.
Customers participate in many service processes, activities, and transactions.
The demand for services is more difficult to predict than the demand for goods.
Services cannot be stored as physical inventory.
Service management skills are paramount for successful service encounter.
Service facilities typically need to be in close proximity to the customer.
Patents do not protect services.

These differences between goods and services have important implications on the areas of an organization, and especially to operations. By understanding them, organizations can better select the appropriate mix of goods and services to meet customer needs and create the most effective operating systems to produce and deliver those goods and services.

1.4 THE CONCEPT OF QUALITY

Product Quality

Functionality – refers to the core features and characteristics of a product. “A set of attributes that bear on the existence of a set of functions and their specified properties. The functions are those that satisfy stated or implied needs”.
Reliability – It is an indicator of durability of products.
Usability – A product should be easily usable. The product can be easily used by customers without the help of experts.
Maintainability – it refers to the ease with which a product can be maintained in the original condition. It should be repairable so as to retain the original quality of the product at the lowest cost at the earliest possible time.
Efficiency- The ration of input over output. Example if a car gives a mileage of 20 kilometers per liter of gasoline and another car with identical features gives 15 kms per liter, then the former is efficient than the latter.
Portability – A set of attributes that bear on the ability of software to be transferred from one place to the other.

Service Quality

a. Quality of Customer Service. The ability to satisfy customers depends on the quality of customer service. This includes but is not limited to:

How well the customer is received?

How well the implied requirement are elucidated?

How well the customer is treated/handled/satisfied?

b. Quality of Service Design – Since services are usually made to order, it is important that the service is designed as per the requirements of the specific customer.

c. Quality of delivery. Quality of delivery is important in any sector, but more crucial in cases of service business. There should be zero defects in delivery to satisfy customers.

Attributes of quality which are applicable to both products and services:

Timeliness – Delivery on schedule as per requirements of the customer is a must both in the product as well as in service sector. No customer likes waiting.
Aesthetics – A product or service should not only perform well but should also appear attractive.
Regulatory requirements – It is stipulated by law that every business should fulfill. Example an automobile has to meet Euro II standards in respect to emission to minimize environmental pollution.
Requirements of Society. The product should fulfill both the stated and implied requirements imposed by society. The customer requirement should not violate society or regulatory requirement.
Conformance to Standards – Product or service should conform to the stated and implied requirements of customers. Where applicable they should conform to applicable standards such as national standards, international standards and industry standards.

1.5 OM: A HISTORY AND CHALLENGE

In the last century, operations management has experienced more changes than any other functional area of business and is the most important factor in competitiveness. This is a chronology of major themes that have changed the scope and direction of operations management:.

Five Eras of Operations Management

ERA	DESCRIPTION
Focus on Efficiency	OM has its roots in the Industrial Revolution that occurred during the late 18th and early 19th centuries in England. Until that time, goods had been produced without the aid of mechanical equipment. During the Industrial revolution many inventions came into being that allowed goods to be manufactured with greater ease and speed; it led to the development of modern factories. As international Trade grew the emphasis on operations efficiency and cost reduction increased. Many companies moved their factories to low-wage countries. Technology was viewed primarily as a method of reducing costs and distracted from the importance of improving quality.
Quality Revolution	US consultants told Japanese executives that continual improvement of quality would open world markets, free up capacity and improve the economy. They embarked on a massive effort to train the workforce, using statistical tools to identify causes of quality problems and fix them; so that the made steady progress in reducing defects and paid attention to consumer’s needs. Thanks to this progress Japanese good were seen as more reliable and better met consumer’s needs, then Japanese firms captured major shares of world market. Therefore, quality became an obsession with top managers.
Customization and Design	As the goals of low cost and high quality became “given´´, companies began to emphasize innovative designs and product features to gain a competitive edge. Quality meant much more than simply defect reduction; quality meant offering consumers new and innovative products, not only meeting their needs but surprising and delighting them. Inflexible mass production methods that produced high volumes of standardized goods and services using unskilled or semiskilled workers and expensive single-purpose equipment, thought very efficient and cost effective, were inadequate for the new goals of increased G&S variety and improvement.
Time-Based Competition	Companies have to respond quickly to changing customer needs to win competitive advantage. That task includes developing products faster than competitors, speeding ordering and delivering process, rapidly responding to changes in customers’ needs and improving the flow of paperwork. As information technology matured, time became an important source of competitive advantage.
Service Revolution	While the goods-producing industries were getting all the attention in the business community, the popular press and in business school curricula, service industry were quietly growing and creating many jobs. Today about four out of five jobs in the US are in the service sector.

EVOLUTION OF OPERATION MANAGEMENT

Historical Development of OM
Industrial revolution	Late 1700s
Scientific management	Early 1900s
Human relations movement	1930s-60s
Management science	1940s-60s
Computer age	1960s
Environmental Issues	1970s
JIT (Just In Time) & TQM (Total Quality Management)	1980s

Pre-Industrial Revolution

One of the first people to address the issues of operations management was the Scottish philosopher -- and father of modern economics -- Adam Smith. In 1776 Smith wrote "The Wealth of Nations," in which he described the division of labor. According to Smith, if workers divided their tasks, then they could produce their products more efficiently than if the same number of workers each built products from start to finish. This concept would later be used by Henry Ford with the introduction of the assembly line.

ADAM SMITH

Frederick Taylor

Human Resource Management

The term human relations refers to the ways in which managers interact with their employees When people in management stimulates more and better work, the organization has effective human relations; when morale and efficiency deteriorates, its human relations are said to be ineffective.

ELTON MAYO

MANAGEMENT SCIENCE

Operations management covers areas such as customer service, quality assurance, production planning and control, scheduling, job design, inventory management, and many more

HENRI FAYOL/MAX WEBER

COMPUTER AGE

How can technology be used in operations management?
Usage of technology in operation management has ensured that organizations are able to reduce cost, improve the delivery process, standardize and improve quality and focus on customization, thereby creating value for customers.

ENVIRONMENTAL ISSUES

Internally, the environmental impact of a business often refers to practices related to the use of natural resources, waste, toxicity, and pollution. For manufacturing companies, the environmental impact can be large, and efforts are generally made to reduce waste, toxicity, and pollution within the manufacturing process.

JIT AND TQM

JIT is a pull system that focuses on producing what is necessary when it is necessary and in necessary amounts allowing the pursue of quality, cost minimization, delivery time and waste reduction, while TQM aims to improve quality by continuous improvements of operations to guarantee free defects products.
Just-in-time is also known as JIT is an inventory management method whereby labor, material, and goods (to be used in manufacturing) are re-filled or scheduled to arrive exactly when needed in the manufacturing process.
Total quality management (TQM) is an ongoing process of detecting and reducing or eliminating errors. It is used to streamline supply chain management, improve customer service, and ensure that employees are trained.

1.6 CURRENT CHALLENGES IN OM

OM is continually changing, and all managers need to stay abreast of the challenges that will define the future workplace. Among these are technology, globalization, changing customer expectations, a changing workforce, the loss of manufacturing jobs, and building sustainability as part of an organization’s corporate social responsibility.

Technology has been one of the most important influences on the growth and development of OM.
Globalization has changed the way companies do business and must manage their operations.
Consumers’ expectations have risen dramatically.
Today’s workers are different; they demand increasing levels of empowerment and more meaningful work.
Final challenge is sustainability; refers to an organization’s ability to strategically address current business needs and successfully develop a long-term strategy that embraces opportunities and manages risk for all products, systems, supply chains, and process, to preserve resources for future generations.